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BREAKFAST DEALS: Bad pharma

Pharmaxis suffers after a poor USFDA review, while Virgin stands on the cusp of sealing its SkyWest takeover.

Investor confidence in Pharmaxis might have evaporated yesterday thanks to the USFDA, the company’s financiers are maintaining the faith and a plunge of 46 per cent always attracts attention. Virgin Australia has got SkyWest past the ACCC, but Tiger Airways will be a different matter. BrisConnections has reportedly put a plan forward to restructure its debt and Sundance Resources is officially past the point at which its suitor should have put a credit approval forward.

Pharmaxis

Pharmaxis shares were absolutely smashed during yesterday’s session following the absolute failure of its leading drug Bronchitol to gain any traction with the committee advising the all important US Food and Drug Administration on efficacy or safety grounds.

Of the 14 members on the Pulmonary-Allergy Advisory Committee, not one gave Pharmaxis’s Bronchitol, which aims to treat cystic fibrosis, the thumbs up.

This doesn’t constitute a binding decision by the FDA; that comes on March 18. But the chance of the negativity reversing should be weighed against the 46 per cent plunge in Pharmaxis shares.

This overshadowed the up to $US40 million financing deal Pharmaxis secured with a US fund called NovaQuest Pharma Opportunities Fund III. This demonstrates a profound confidence that Pharmaxis can come back from this.

Whenever a company’s stock is hit to that degree, it often tends to court takeover speculation simply because it suddenly looks like a bargain. It should be said that Pharmaxis has a strong chance of recovering some lost ground in today’s session. It’s easy for a plunge like that to include some overselling.

However, the big pharmaceutical companies routinely buy out smaller firms that have promising treatments without the financial firepower or connections to get the thing past the US regulator, which protects world’s largest and most important market.

With a market cap of just $209.8 million courtesy of yesterday’s slip, Pharmaxis could find itself on the radar of a few big pharmaceutical players in coming months.

In the meantime, here’s hoping there’s something a little more encouraging to come when the FDA hands down its final decision.

Virgin Australia, SkyWest, Tiger Airways

Virgin Australia now only needs approval from the Foreign Investment Review Board to proceed with its $100 million acquisition of Perth’s regional airline SkyWest.

Chief executive John Borghetti would have been happy yesterday with the green light being given to the proposal by the Australian Competition and Consumer Commission.

"This acquisition will enable us to accelerate our expansion in the high growth fly-in-fly-out and regional markets, increasing competition in these important segments and bringing new benefits to customers,” Borghetti said in a statement.

FIFO routes are largely for resources projects where workers will be on a roster that’s something like 10-days on, 10-days off. Consider the wages that miners are on and all of the sudden getting them there in a timely fashion becomes an obviously lucrative business. Virgin’s main rival Qantas Airways has been prioritising this space recently as well.

The main regulatory question on Borghetti’s lips that remains is not the FIRB’s approval of SkyWest, but the ACCC’s determination on Virgin’s acquisition of a 60 per cent stake in Tiger Aiyways.

The Singaporean-owned, lowest-cost carrier has been struggling almost since it entered the Australian market with oil prices, competition and its well-known reliability issues all hindering its performance.

But the ACCC hasn’t been making positive signals on Virgin’s intention to effectively seize control of one of Australia’s only domestic operators outside the main two.

ACCC chairman Rod Sims is expected to reveal his hand on February 7.

BrisConnections

BrisConnections has reportedly asked its lenders for an interest-free period on its $3 billion debt and the continuation of the current board and management under the latest restructure proposal.

The Australian Financial Review understands that the embattled tollroad company plans to reduce costs by renegotiating "material operations and maintenance agreement,” along with cutting overheads.

The deal is part of a push to save BrisConnections from receivership, after it became apparent that the total value of its asset, the Brisbane Airport Link tunnel, mightn’t equal the value of its debt. Traffic numbers on the tollroad have fallen short of expectations.

BrisConnections shares last traded on November 9. Since then, Macquarie Group has picked up large chunks of the company’s debt, in an apparent effort to protect its 46 per cent stake in BrisConnections itself.

The board has also reportedly written to the Queensland government warning them that putting BrisConnections into receivership is something they’d be prepared to do.

Sundance Resources, Sichuan Hanlong Mining

Shareholders in iron ore miner Sundance Resources will be wondering today how many more Fridays they’ll have to see before being able to vote on the scheme of arrangement from troublesome suitor Sichuan Hanlong Mining.

Having fulfilled their end of the bargain in regards to permits required to bring the Mbalam iron ore port and rail project between Cameroon and the Republic of Congo to life, Sundance shareholders look like they’ll have to wait – again – for Hanlong to pony up the dough.

The deadline for the credit approval notice from the government-run China Development Bank expired yesterday without a peep from the $1.4 billion takeover target.

The miner reported rather worryingly that it is seeking clarification on whether the privately owned suitor had extended the provisional approval it had received for the deal from China’s National Development and Reform Commission.

The $4.7 billion project that Sundance is sitting on was once considered an absolute belter, but that was back in the day when mining financing was much easier to come by. Billionaire Gina Rinehart is still trying to get the Roy Hill deal down.

Sundance just has to wait to see whether Hanlong can get its act together. You have to wonder though whether it should be legal for a suitor to string a target along like this without some kind of compensation.

Wrapping up

Casella Wine managing director John Casella has reportedly drawn a line through an equity raising or IPO to address the Yellow Tail wine maker’s debt problems.

Casella is quoted in this morning edition of The Australian Financial Review saying that bringing in partners is something to be done in your prime, or the deepest of holes.

The same newspaper reports that hopes of a gas supply deal for Rio Tinto’s Gove alumina refinery have passed, increasingly the likelihood that production at the plant will be suspended.

In corporate failures news (cheery I know), Mothercare Australia is in the hands of administrators after the Myer family walked away from a deal to save the business following due diligence.

And finally, creditors of fallen engineering company Hastie Group have voted unanimously to liquidate all 42 of the firm’s subsidiaries.

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